Is The Government Misrepresenting Unemployment By 32%?

There is an old saying, "when in doubt follow the money." These days investors have lots of doubt about pretty much everything (if not so much money). And with data from the government increasingly bearing the Quality Control stamp of approval of the Beijing Communist Party, there is much doubt in store courtesy of an administration which will stop at nothing in its competition with China as to who can blow the biggest asset bubble the fastest, data integrity be damned. Undoubtedly, of all government released data, the most important is, and continues to be, anything relating to unemployment. This is precisely where the government's propaganda armada is focused. Yet in matters of (un)employment, the ultimate authority is, luckily, the Treasury, and not the Fed. "Luckily," because when it comes to making money "difficult to follow" Tim Geithner's office still has much to learn. Which is why when we looked at the Daily Treasury Statement data we were very surprised: because it indicates that the government could be underrepresenting employment data by up to 32%!

The suddenly very prominent topic of Unemployment Insurance, whether it pertains to Initial Claims or to Emergency Unemployment, has one very useful characteristic: it is based on "money", specifically money outflows from the US treasury which goes to fund the weekly "paychecks" of those that have not been in the workforce for well over a year. And as pointed out earlier, money can be followed. The US Treasury presents a daily in and outflow of all money sources in the Daily Treasury Statement prepared by the Financial Management Service. And in the plethora of data presented here, probably the most relevant and useful data series is the Withdrawals quantified in the form of Unemployment Insurance Benefits.

Compiling the monthly data of Treasury Disbursements for Unemployment Insurance Benefits and then superimposing it with the total number of people receiving Insurance Benefits as disclosed by the Department of Labor is a useful exercise, as the two series have historically correlated with an R² of well over 0.90. Below is an indexed comparison of UIB outlays and Unemployment Insurance Receivers for Fiscal 2007.

Surely this is logical: the more unemployed collecting benefits from the government, the more the outlays.

Yet what struck us is the when this chart is presented from 2007 until today. Something unusual emerges. An absolute chart of the money spent by the government superimposed with the total insured unemployed is presented below:

Yet the best way to see what this chart indicates is on an indexed basis with a September 2007 baseline.

What becomes obvious is that a correlation which used to be almost 1.000 has diverged massively, and now the relative outlays surpass what the government highlights are the number of people actually collecting benefits by 32%! This implies two things: either the average unemployment monthly paycheck has surged, which is not the case, or there is some gray unemployment area which is not disclosed by the government, and which accounts for a shadow unemployed insurance economy. Because while the DOL indicates there are about 9.5 million total unemployed, for the correlation to return to its near 1.0 trendline the number of unemployed on benefits has to be 14 million. At least this is what the actual cash outlays by the Treasury suggest: the government spent a record $14.7 billion on Unemployment Insurance Benefits as of December 30, a 24% jump sequentially from the $11.8 billion in November. Yet the DOL has disclosed a mere 1.7% increase in those to whom insurance benefits are paid: from 9.4 million to just under 9.6 million. To put the $14.7 billion number in perspective, in December the Federal Government paid a total of $14 billion ($700 million less) in Federal Salaries! A cynic could be temped to say that effectively the number of people employed by the government is double what is disclosed. A yet bigger cynic could claim that America is now the biggest socialist state in the world. Both cynics would not necessarily be wrong. 

And some more perspective: in calendar 2009 the government has paid $140 billion in Unemployment Insurance Benefits. This is yet  another economic stimulus that nobody in the administration discusses, yet which undoubtedly has the biggest impact on the economy, as all those millions unemployed can moderate their pain courtesy of a passable weekly check from the government which should just about cover the rent and beer. Which is why more than anything, Obama is dead set on extending insurance benefit payments in perpetuity: because if the 10 million official and 14 million unofficial people who are on benefits (not to mention the tens of millions of unemployed unlucky enough to even get their weekly allowance from Uncle Sam) start thinking about their true predicament and their real "employability", then a landslide loss by this administration at the mid-term elections will actually be an upside surprise to what it can objectively expect.

h/t Michael

Comments

[Selah]

An explaination:

http://outsidethe-cardboard-box.tumblr.com/post/281336116/u-s-workforce-...

[Anonymous]

The setup and the takedown.
There where quite a few of us who saw this coming by the end of the Bush Residency.
Ponzi economy built on inflating house prices entirely supported by funny money 80/20 loans from the banks.

Now you have a 36 million on foodstamps, 11 million on unemployment (emergency unemployment/ extensions), 43 million on Social Security.

I'm sure we have over 1/3 and perhaps closer to 1/2 receiving from the Govt. Socialized education/highways/'state parks'/nature preserves/eco-zones/libraries/medicine/Fannie/Fredie-GMAC

Next commercial real estate

All monies in stocks/bonds will be appropriated in a vacumn suck final economic abortion. All pension funds...savings...looted.

Love the 'street name' business and DTC.

Tyler, why don't you do an in-depth on Cede n Co and how for a fictitious company it's pretty weird for them to be a named plaintiff in many law suits against brokerages and how Cede n Co is a registered co in Italy with connections to IMF.

Gotta love it.

-MobBarley

[Anonymous]

I am very scared. 59 Y, looking actively for job since May 2009. Have been chroniucally underemployed before.

[Anonymous]

Tyler,

I think the riddle may be "solved" when you consider that a lot of people who chose to start taking Social Security benefits in the past year or so are allowed to collect extended unemployment (first item at link):
http://www.bizzyblog.com/2010/01/06/lucid-links-010610-morning/

In an awful lot of cases, they're not looking for work (hence not considered in unemployment rate calc), but are collecting benefits.

Have no idea how many are doing so, but there was a 20%-plus spike in SocSec retirement apps last year, and many of them were in response to being laid off and not seeing much of a prospect for an acceptable (in their opinion) alternative.

Also (second item at link), people under 62 who decide to seek Social Security disability benefits after being let go might also still be able to collect unemployment benefits.

[Anonymous]

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[gwane]

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[mreese1969]

Really???....actual unemployment higher than stated !!..no way thats possible.

I can tell you exactly how they are getting away with the figures because I've been unemployed for 16 months now through no fault of my own and haven't been able to find a job despite 1000's of sent resume's.

Of the 16 months I've been eligible....I've been kicked off the roll at every extension point and have had my benefits revoked for some "problem".  It takes months for them to figure out there was no problem and they pay me a lump sum for the months I was starving to death.  Of the 16 months I should have had a steady check coming in I was WITHOUT a check for 9 of those months....9 months!!!.....Never once was there a problem.

Everytime this happens it appears that I'm not unemployed.  Same exact thing is going on right now with the failure to pass the last extension.  Suddenly,  I'm not unemployed !!!!!......along with a million other people!!!!

We ALL found jobs at the exact same time!!!!!!!!!......hurray!!!!!

Well,  I for one have nothing left except $60,000 in debt obligations and I refuse to pay another dime.  I'm sure my million buddies are in the same boat so I wonder how all this will play out in the economy 6 months from now when the banks have to report the MASSIVE defaults coming!!!

Short all bank stocks and credit stocks 6 months out and you'll be RICH !!!

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